Central Bank of India is the host for this year's annual bankers conference, Bancon, organised by the Indian Banks Association. Mr S. Sridhar, Chairman and Managing Director, Central Bank of India, spoke to Business Line about the rationale for choosing the theme and the issues that will be discussed during the two-day conference.
Excerpts from the interview:
As a host, you had the privilege of choosing the theme for this year's conference. Why did you choose this particular theme?
There are two aspects. The Indian banking system is doing very well. In the economic crisis, the Indian economy has come out with flying colours. The banking system has played its role. It is acknowledged by our peers. But now is the time to really step up and to outperform. Other sectors are doing very well. The manufacturing sector overall is doing well. The service sector has also got back its momentum. There is tremendous growth opportunity coming up. For instance, financial inclusion for the unbanked. We have started on it. It will open up great growth opportunities. It is just not giving money to NREGS. It is a different mindset, different way of doing things.
We are having the confluence of technology, banking, marketing techniques. Mobile is coming up in a very big way. Our life is getting transformed and in the process it is bringing about a transformation among banks itself.
For instance, today, PSU banks that were thought to be very slow have proved to be better in an economic crisis. As Indian public sector banks adopted technology, their output became comparable to the private sector. Now what the private sector is trying to do, they are trying to do better… marketing and introducing more add ons. So, that is the next stage… we have to keep on ideating and move on.
Can you give some examples of how this can be done?
For example, this financial inclusion business can be looked at in different ways. I look at it as a way of customer acquisition because we are going to get a lot of new customers. Second is infrastructure finance. The way infrastructure is developing, it will throw up a lot of opportunities. Financing the informal sector will also throw up a lot of opportunities.
UIDAI (Unique Identification Authority of India)… we can ride piggy back on it. Next thing could be convergence of telecommunications and banking.
What would be the major challenge for public sector banks?
One major challenge is going to be the ability to understand the environment, interpret it and take strategic decisions. Today, if you make a wrong strategy, you are put back by a couple of years. The price that you have to pay is much higher today than that in the past. For instance, in my own bank, we were late in technology. We are paying the price for that today. Somewhere, the right priority was not given. Today, it is top priority. When I took over, in March 2009, it was 30 per cent Core Banking System. Today it is 100 per cent CBS.
Similarly, understanding the next generation customer is another challenge. Next generation customer is segmented in so many ways. Understanding the nuances, positioning products for them, positioning your organisation is the challenge.
Another challenge is how do you find people? At one level, particularly in public sector banks, we are having an ageing problem. In many of the banks, including mine, there will be an erosion of senior management in the next three-four years. In my bank, 35 per cent of the employees will retire by 2013. Of course, we can look at it as an opportunity.
I can recruit young people, more agile, technology oriented people. But on the flip side, we are losing senior managerial talent also. I cannot recruit from other banks because, there also it is the same problem. Where do you find people even for the rapid intake even at the entry level? In PSU banks, through our government processes, it takes one year to recruit somebody. In the private sector, the bank gets a head-hunter and finishes recruitment in two months.
Pressures at the market place are also increasing — financial markets, equity markets…
Most banks have private shareholders, institutional shareholders, FIIs, who have their own demands on the way we present things, the way we give information, the way they react to things. We can see from the recent episode on how the banking sector has taken a battering. Immediately, one day the stock is in on a song, the next day it takes a battering and then the slow climb back. How do you position the banks to be an outperformer?
For instance, now we have a situation where credit growth is sluggish. How do you manage to grow, how do you make profits? At the same time, deposits are in short supply, cost is going up. We also do not know when the situation will go back to a surplus liquidity situation. Then how do you adjust? How to manage the pricing policies, risk management procedures? So, while there is lot of scope to outperform, there are also lot of challenges. So what we are trying to find at the end of this conference is what are the common success factors. What are the types of strategies that should be adopted? What kind of organisational measures should banks take to prepare themselves?
Do you feel an increase in the number of banks will ensure better reach?
We need efficient banks. The level of expertise that is required. There is expertise involved in lending money to the poor in rural areas. Kudambashree in Kerala was an outstanding success. Why can't banks do it? What are the limitations that we have? How do you make cost effective models? There is a lot of innovation possible there.
Having said that, looking at the size of the country, SBI is the largest bank, but it is comparatively small when compared to other countries. We need two-three very large banks. Even a small country such as the Netherlands has got some very big banks.
India, now a member of G-20 and moving up the ladder, needs some large banks. Secondly, I think there is also a case for smaller banks with regional focus, who understand the local environment better as they respond quickly.
For instance, in Kerala, you have Federal Bank which understands the market. Even community banks play an important role. But the issue is to see that they are adequately capitalised, have talent, how the management is.
What are the steps needed for improving financial inclusion?
We are trying to link up with UIDAI. But is that the answer? It is a model we are trying. Other model is microfinance institutions. Who will go the last-mile? We are trying to use smart cards. We are trying to use mobiles… the micro ATM device, the specifications of which have been standardised by UIDAI, is very useful for the bank. The challenge is for the banks themselves to get organised in order to be able to deliver these things effectively. It is not just technology, but much more than that.
People in villages are even afraid to submit themselves to biometric identification. How do you organise them, finance their small requirements, ensure that at least part of it goes to productive purposes rather than only consumption? Households in Andhra Pradesh borrow too much. They are indebted. How do you manage those expectations?
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